“The way that we do a lot of things has changed because of the internet; the way we buy things and the way we consume media are changing and that throws up a number of really exciting opportunities in the UK equity market,” Mackersie (pictured) said.Mackersie stresses that his Unicorn UK Growth fund is not a tech fund, but it is by far his biggest theme with technology related companies making up the lion’s share of his portfolio.
It has also helped him build up a decent tract record as, according to FE Analytics, the £30m fund has been a top decile performer in the highly competitive IMA UK All Companies sector since he took over in March 2011 with returns of 56.36 per cent; nearly doubling the gains of the FTSE All Share in the process.
Performance of fund vs sector and index since Mar 2011
Source: FE Analytics
The manager says it is an illusion that investors need to turn to the US if they want innovative technology companies.
“A lot of people think that to get exposure to these themes you need to go to the US. While there are more opportunities there, I think there are some very sensibly valued companies here in the UK with strong exposure to them as well.”
He points out that the UK digital economy is, as a percentage of GDP, is the largest of any developed country and that we spend more online, per person, than any country in the world – almost double the US.
Mackersie added: “We are a nation of early adopters and we embrace new technology. Our office is not that far away from ‘Silicon Roundabout’; it’s a real thing, not just something that politicians talk about.”
In this article, the manager highlights three major tech-related themes and the companies he thinks will benefit from them.
Online infrastructure – IOMART
Mackersie is a big fan of IOMART, which is listed on the FTSE AIM, as it benefits from the increasing number of companies that are turning to the internet to market themselves, help their customers and sell their products.
“IOMART was, for a long time, the largest holding in the fund but the share price has pulled back a bit recently, but it is still a very exciting long-term holding,” the manager said.
“It is a hosting panel, so they physically host websites and private services because they have to be hosted somewhere. Companies don’t like to do it on their own premises due to operational risk, so they increasingly outsourcing to the likes of IOMART.”
Shares in IOMART have surged over the last five years and are up 350 per cent.
However, as the manager points out, the stock has fallen recently following a number of failed take-over attempts.
Performance of stock in 2014
Source: FE Analytics
Despite that, it is still one of his top 10 holdings.
“The company has great long-term prospects. Its profitable, cash-generative, pays a dividend and it’s got a pretty strong balance sheet. It’s got a bit of debt but not a significant amount, plus it is only running at 50 per cent capacity so plenty of room for growth.”
Three other IMA funds count it as a top 10 holding and they are Threadneedle UK Smaller Companies, Majedie Special Situations and Liontrust UK Smaller Companies.
Digital content – Entertainment One
The next theme is digital content and Mackerise likes Entertainment One, the FTSE 250-media company, as a great way to play it.
“I don’t know about you, but I don’t really watch live TV much now because I watch the likes of Netflix and iPlayer.”
“This company, Entertainment One, which is only really known for Peppa Pig, has a big digital portfolio of films and TV shows. It is an increasing theme that DVD and CD sales are falling, so they can monetise that into digital format and benefit from that trend.”
Investors in Entertainment One have been very well-rewarded in the past as the stock is up more than 700 per cent over five years but, like IOMART, it has sold off this year as investors have rotated out of high multiple growth stocks.
Other notable backers of the company include the Investec UK Smaller Companies fund and FE Alpha Manager Mark Slater, who holds it in his MFM Slater Recovery fund.
Mackersie is very positive on the theme of digital content as he also holds One Media which buys digital music rights, packages them up and sells them to the likes of iTunes and Spotify.
Mobile computing – ARM Holdings
“Mobile computing is quite an obvious one, but it’s not just smart phones. It’s increasingly becoming the ‘internet of things’, so dishwashers, alarm systems and TVs are all becoming connected to the internet and that is beneficial for the likes of ARM holdings,” Mackersie said.
ARM is listed on the FTSE 100 and has a market cap of £13.8bn.
Though it is a large cap, like IOMART and Entertainment One, it has had a tough year so far and is down 15 per cent.
Performance of stock vs index in 2014
Source: FE Analytics
However, as more and more appliances are becoming connected to the internet, Mackersie says the outlook for the business is very positive.
“ARM is a great business. They don’t manufacture anything; they just design chips that go into smart phones. It has 95 per cent market share and there chips are low power, which is what everyone wants because they want to extend battery life.”
“They are increasingly supplying to other applications, so it’s not just smart phones and tablets anymore.”
According to FE Analytics, there are 18 funds in the IMA Universe that hold ARM Holdings in their top 10, one of which is Jeremy Lang’s Ardevora UK Equity fund.
